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Dear Sir,
I am working on the question BliptonInternational in BPP Kit. In the answer, It’s converted from real CF to norminal CF as below:
20X4 20X5 20X6
Real CF 52 490 2,242
Norminal CF 54.63 527.68 2,474.75I tried Fisher formula however my result is not equal to above normunal CF. Please help to show how it works from real CF to norminal CF in above.
Thanks,
KTThis is nothing to do with the Fisher formula.
To go from the real cash flows (without inflation) to the nominal (actual) cash flows you simply inflate them at (in this case 2.5% per year).So 52 real cash flow in two years time inflates to an actual cash flow of 52 x (1.025^2) = 54.63
490 real cash flow in three years time inflates to an actual cash flow of 490 x (1.025^3) = 527.68
Dear Sir,
I have below questions for Blipton International:
– When we calculate the terminal value of hotel (6,200 x 1.08^5 – 1,200) = 7,910 in the year 20×9, why don’t we consider the tax impact? In real life, when we dispose assets, we record the gain in the other income and this income is always subject to corporate income tax.
– In this question, we distinguish between cf from investment phase and return phase. The tax savings is positive cf which is recorded in the investment phase however the terminal value of hotel (also positive cf) is recorded in the return phase. This is important for MIRR calculation. so why do we record tax savings and terminal value as above? and any specific rule to distinguish investment and return cf for MIRR?Thanks
The question implies that the terminal value is already after tax.
The tax saving on the investment effectively reduces the cost of the investment which is why it is in the investment phase – it only arises as part of the investment.
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